Joseph Baladi, CEO, BrandAsian

Jessica Vaughn, 22 August 2012

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I believe that within the next 10 years or so, we are going to transition to a Chinese Century.

As part of our research for our August trend report, “Remaking ‘Made in China’,” we spoke with Joseph Baladi, CEO of BrandAsian, which provides business and branding counsel to CEOs of some of Asia’s largest companies. Baladi, who is based in Singapore, is also author of The Brutal Truth About Asian Branding and has held senior regional and global brand responsibilities at DMB&B and McCann Erickson Worldwide. He explained why he thinks that “great Chinese brands” will emerge as we transition to a Chinese Century, why CSR will be a key factor in their emergence and how Chinese businesses are already evolving to become more competitive in the global marketplace.

How do you define the Chinese Century?

The world is changing at an unprecedented pace both in terms of scale and scope. We’ve always experienced change, but the kind of change we’re seeing right now is a paradigm-shifting kind of change.

The world I grew up in is mostly broadly described as the American century. After the Second World War, with the implementation of the Marshall Plan, the generosity of the United States, our gain was based through the dissemination of the American brand. I’m not talking about just promotional brands. When I talk about the American Century, I’m talking about the likes of Levi’s, Coca-Cola and General Motors, etc., as well as American ideas. I’m talking about rock & roll and Hollywood. Celebrities like Elvis Presley. I’m talking about ideas like the spread of democracy that essentially formed perceptions around the world culturally about America.

This contributed to people aspiring to the so-called American Dream, and the American Dream did stretch from owning Levi’s jeans to wanting to live in America. So that shaped the American century. It impacted all our lives. I grew up in Brazil, for instance. While Brazil had a very Brazilian character, the American influence was predominant. I now split my time between Australia and Singapore, and it’s still very predominant. American culture has infected the world for the last three or four generations.

A lot of people are arguing that we are now reaching a point where we’re seeing a bit of a decline in the impact of the United States. If you believe the Chinese Century is coming, and most people do, you’ve got to be able to define it. If you define it like the American Century, you come up with a paradox because today the three dirty words remain “Made in China.” We have problems with the safety and quality associated with “Made in China.”

Yet I believe that within the next 10 years or so, we are going to transition to a Chinese Century. We’ve just defined the Chinese Century relative to an American benchmark. That means we are going to have great Chinese brands, both business Chinese brands as well as cultural, because that’s what defined the American Century. How can we have a Chinese Century when all these brands and commercial products are perceived to be of lesser quality? We don’t have the same kind of Chinese iconic cultural brands that impact the world as American cultural brands did, and yet people talk about it.

So how do Chinese companies create iconic brands and get beyond the “Made in China” issue?

Thirty years ago, most of the problems in the world were more or less tackled by government. Today we have a completely different landscape. There is global anxiety. We have the economic crisis, political instability in many countries, global terrorism, the prospect of wars, the never-ending conflict in the Middle East, as well as North and South Korea. We’ve got climatic issues like global warming, sustainability. Put all those things together and you have people around the world continuously being anxious at an unprecedented rate. We didn’t have this 20 years ago.

People now lead their lives in a state of anxiety at a time when the influence of government is declining. That creates an opportunity for business to fill in the void.

CSR is going to emerge—not because it’s a nice thing but because companies recognize that it’s an important opportunity at a time of unprecedented change. In China, you’ve got a situation where companies are emerging, growing, getting stronger but still under this shadow of “Made in China.” Now Chinese companies are changing very, very quickly, and you’re going to find that many categories in China are going to be led by visionaries who understand the opportunities tied to CSR.

They’re going to recognize purpose as a means to differentiate their brand, not only at a domestic level but at a global level as well. You’re going to see the emergence of great Chinese brands, both cultural and business brands, in the next five to 10 years on CSR platforms.

Given the state of environmental degradation in China today, what makes you so confident that Chinese brands will embrace CSR?

People are always surprised when I say that: “China and CSR, the two could not possibly be more divorced.” Now you might be surprised, but if you look at the facts, at all the published data from the NGOs, China is spending more proportionately and per capita on CSR-related issues than other nations.

Now why is China doing that? Mostly because it fears social instability. As Chinese people begin to move up the value chain and begin to have the basic commodities that all people aspire to, they’re going to begin to look around and recognize that Beijing is polluted, kids are being infected and all sorts of issues that are going to affect their consciousness. And that’s the sort of thing that the political parties in China are very sensitive to.

It’s not about doing good for its own sake but because it’s a logical, practical approach. I think in the next five, 10 years, a lot of very savvy Chinese companies are also going to recognize that people around the world, who are consumers at the end of the day, are going to have their needs, their anxieties, also tempered. A lot of these companies are going to be exploring CSR-related platforms, and that’s how I think the Chinese Century will emerge.

Are there any Chinese companies currently doing a stellar job in their CSR efforts?

Not a stellar job. A lot of companies are beginning to explore those questions. I was in Beijing about three months ago meeting with Chinese business leaders and Duke University professors exploring business opportunities and growth on the global landscape. There is a great deal of recognition of CSR as a principle, as a discipline and as an opportunity.

I think the Chinese are trying to figure out how it works. The most important tool that’s going to trigger this is not necessarily process, it’s understanding that for CSR to work, you have to be genuine about it. You’ve got to have a culture within an organization that believes consumers deserve whatever it is you’re doing. Either mitigate your carbon footprint or whatever it is that your CSR initiatives are. And right now that kind of genuineness is still something companies are struggling with.

Here in Shanghai, I’ve definitely noticed the huge lack of trust among domestic consumers. It seems like that certainly needs to be overcome in order for any of these brands to become successful global brands.

The only thing I find encouraging is that wherever there is innovation in thinking amongst Chinese companies, it’s always been sudden and it’s been a big leap forward. It’s never gone through the same kind of learning curve that you find in other countries. When the Chinese get it, they get it very quickly and they leap forward with it. I think some of the larger companies, particularly in technology, are going to be the first. I’ve met enough individuals, entrepreneurs, who get this idea or really understand.

I think the next wave of Chinese managers are going to be a combination of people that have studied in the West, particularly the Ivy League universities, and bring back the disciplines to create hybrid strategies in China. They’re going to understand the local culture, customs and realities, and create business strategies and branding strategies tailor made to their needs but with the benefit that comes from going through Princeton or Harvard or Kellogg.

We’re at a time when China has just emerged through 10 or 15 years of dramatic growth, but that was entirely driven by one generation of managers. These people are being replaced. You’ve got to ask, What is going to be the face of Chinese business over the next five years with such a massive fundamental infrastructure change and through that leadership?

Will this new group of managers have a CSR focus? Will they understand the importance of transparency, accountability and building trust among consumers?

The ones I’ve spoken to are very encouraging. You have to understand, they all recognize that they are coming from a generation of Chinese that have experienced the fruits of affluence or discretionary income. So these people who can afford an education or can afford to go abroad can also afford the luxury of thinking a bit more broadly. They are recognizing the changes in the world for what they are, and importantly they’re also recognizing the opportunity.

Now, are they sincere about all of this? I think some are probably going to have to be, because they are going to see there’s a connection between delivering to a need in a genuine way and how that contributes to the bottom line. Others, probably not. Are they going to be more transparent? I’m inclined to believe so, because you now have, as I said, a generation of younger managers that have experience with it in their lives and then a couple that probably have experience overseas, if not an education overseas. So they come back and they recognize that companies that empower people, that are nimbler, require transparency and are going to be more competitive.

The Chinese or the Asian model of secrecy, of keeping things close to your chest, has lost ground already in countries like Singapore and Hong Kong, and they continue to lose ground in other Asian countries. For those Chinese entrepreneurs that are traveling overseas and getting the benefit of broader education, I think it’s going to be a no-brainer.

Can you think of any companies that are doing a good job in this space now?

Lenovo is doing a good job. If you go to their campus in Beijing, you get a very Western feeling about it. When you talk about some of their issues, they’re straightforward. So you’ve got an openness there. You walk around the campus and it’s not exactly global, but it’s got that kind of Silicon Valley feel to it.

I spend a lot of time with business professors in China. What’s really interesting is how open they are about their problems and their failures and the weaknesses of the Chinese system both at the political as well as the business level. I’m talking about professors speaking openly to students about this and that. It was extremely surprising and very, very encouraging to hear.

You’ve got a whole generation of MBA students going through one of the most prominent universities, experiencing classes that ultimately explore the weaknesses of the system and how it impacts business. That’s really important if new solutions and innovative ideas are going to emerge.

What are some of the biggest cultural factors working against China’s trying to expand internationally?

I think it’s exactly the same as those I discovered in most other Asian countries and companies. It’s remarkable, actually, because you’ve got different cultural dimensions at play, yet I discovered in the research for my first book that there are a number of issues contributing to the arrested development of Asian brands.

The first is the CEO mentality, because it’s very patriarchal. Whether you’re in China or in Malaysia, the patriarchal nature of the CEO and his approach to business is covered. Whether it’s a family company or a multinational, the CEO is the predominant voice in the company. Nobody questions the CEO. He is omnipresent, omni-seeing, he’s omni-powerful, so that creates an issue in terms of internal communication.

You’ve got alpha males that are only willing to hear what they want to hear, so you have very few suppliers willing to tell them what they need to hear. So that contributes to some arrested development at the business strategy development level, the brand development level, as well as the organizational structural level, because within this very hierarchical structure, you have very few empowered employees, and there’s less tolerance. It means that companies are very slow.

You’re going to have to have CEOs that are more open-minded, willing to accept advice. You’re going to have to have employees willing to express an opinion. Right now in meetings you have a silent group of Asians who aren’t willing to ask questions, aren’t willing to express themselves, because they’re not willing to expose themselves or take a risk in being wrong. So nobody talks. Nobody expresses themselves.

When you’re lacking active internal communication, that translates into the absence of the single most important thing that contributes to growth: innovation. Nobody contributes a thought, nobody contributes an idea. So you’ve got no innovation happening. All these things are connected in a vicious cycle. You’ve also got what I call unscrupulous brand consultants, who are willing to tell CEOs exactly what they want to hear as opposed to what they need to hear.

Yet you’re still optimistic that the Chinese Century will come. Do you see this transition actually starting to happen, or do you just see it as an inevitability?

It’s partly inevitable because of the global landscape, because of the kind of things we are going through right now. If you’ve got governments that are receding, the only real solution is going to be business. And the only real market that is going to be more powerful than any other market to recognize the ability to contribute to solving problems, or at least relieving the anxiety of global consumers, are going to be Chinese companies.

So I’m anticipating or betting that you’re going to have individual visionaries in most categories excelling here. It’s going to happen slowly initially, but then when it does happen, it will be very, very fast. I think this is going to happen because of the inevitability of it and also because of the new breed of Chinese managers that are emerging. You know, they’re not tainted by the convictions and the mentality that the first wave of Chinese managers inevitably were. So we’re at a very interesting time right now.

I think it’s going to happen because the Chinese are very pragmatic as well. I think it’s already happening, and when you look at the published figures by NGOs and the existing CSR-related activity and investments that China and Chinese companies are already making, it’s a very good sign of what lies ahead. Chinese companies and the Chinese government are going to be looking for these kinds of initiatives only because you’re going to have a highly demanding, visible and audible domestic community that’s going to be demanding this. The moment you begin to deliver on those expectations, it’s going to spread to the global consumers as well once the opportunity is recognized.

So it’s a lot of dots to connect, but it all depends on the premise, Do you believe there is going to be a paradigm shift? Do you believe the Chinese Century is going to happen? And you ask enough people, and you find that most people believe that.

There are still, obviously, huge problems with the “Made in China” label in the West.

To be honest with you, there is a fundamental problem. When you look at the tainted milk scandal, the problem was essentially systemic or structural, in a sense. In most countries, you have two or three major consolidated players. In China, you’ve got dozens and dozens of little suppliers that contribute to the milk industry. Inevitably, as part of this system, something is going to break down at some point. A lot of industries in China are made up of a supply chain system that needs to be consolidated and professionalized. So that’s the first step.

“Made in China” is going to improve if you deconstruct the industry and bring it down to a manageable number of players that are more professional, transparent and better able to deal with industry challenges. Ultimately what comes out of that is a better-quality product. That’s the most important thing.

Do you see Chinese companies currently creating a better-quality product?

There are a lot of companies that are moving up the value chain, and there are a lot of categories where the degree of technological engineering is absolutely breathtaking. I mean, China’s now making airplanes for the commercial environment. It’s making commercial trains that are competing with the Japanese bullet trains. Basically, there is nothing at a higher level that China is not either already in or planning to go into and developing high skill sets.

The highest number of engineers and scientists are coming out of China these days, areas that the United States is continuously declining from. So you can expect that there will be more innovative thinking—presuming that it’s encouraged by cultural change—because of the investment taking place in educating people in those fields.

Meanwhile, a lot of Chinese people seem eager to absorb Western culture and brands.

It’s not just Chinese, as you probably can guess. Asians tend to gravitate towards Western brands, and the question is why. We have an inability in Asia to build great brands. The region is awash with good brands—and sometimes, as Jim Collins has famously said, the biggest enemy to great brands is good brands, because you don’t see the importance of greatness when you’re surrounded by reasonably good brands. But essentially, we don’t have Asian IBMs, Asian Apples, Asian Coca-Colas. We have good Asian brands.

Several reasons contribute to that. It’s a vicious cycle that again goes back to the structure of most Asian companies. All those things contribute to the inability of great brands to pick up. So you have Asians still aspiring to own Western brands. It’s like a glass ceiling: Only the great brands get into the consciousness of global consumers, and Asian companies haven’t yet figured out how to break through that glass ceiling that separates good from great.

Let’s go back to the American Century. After the Second World War, the two titanic insights of American business that contributed to the growth of commercial brands were these: Brands define people, and brands are not necessarily just commercial, they’re also cultural. The first insight is extremely important, and Asian companies haven’t figured that out yet. Why do people aspire to own a BMW? I may not necessarily be an investment banker or wear a black Prada suit, but you know the kind of associations people have with BMW. It’s an international brand, because it helps define you to yourself and to others.

So this gives you BMW and Apple people. We know what Apple is and what Apple people are. Part of their lifestyle is defined by the brand they are buying. We haven’t yet gotten to a stage where too many Asian brands are capable of defining people. The big asterisk here being Japanese brands, because Japanese brands began their development earlier than the rest of Asia. There was a lot of resistance as well when they first started in other markets. When you take them out of the equation … we do not have really, really great brands. There are very few Asian brands that have reached a point that they are capable of defining people.

In a globalized and interconnected world, is it important for a brand to tout its national identity?

It’s not. I mean, people are not necessarily buying brands because they come from one country or another. There is one caveat, and it is a big disadvantage for certain companies. If you’re a no-name brand coming from Japan, people are going to give you the benefit of the doubt because you’re a Japanese brand, but if you are a no-name brand emerging out of China, you’re going to come out with a handicap.

At the end of the day, people are not buying national brands, and they’re not buying brands that have a certain provenance. They are buying great brands, and that’s the most important thing. People don’t necessarily distinguish unless the origin is particularly troublesome.